Luc Frieden, former finance minister and the CSV’s lead candidate for October’s legislative elections, participated in a panel at a conference dedicated to the future of Luxembourg’s financial centre organised by Elvinger Hoss Prussen on 7 June. Though optimistic, Frieden also had a few remarks about what needed to be done to help the financial sector develop further.
Luxembourg’s financial centre represents around 30% of the country’s GDP, noted Frieden, and “quite an impressive number of people” work in the sector. “But it’s largely taken for granted by the public opinion,” he said, “and I think it cannot be taken for granted.”
London, Dublin and the country’s other competitors “are not sleeping,” warned Frieden, and he added that it’s “very important” to promote Luxembourg’s financial centre to the outside world.
Need to be much more “ambitious”
“I’m quite optimistic about the future of the financial centre, because the world needs financial centres,” said Frieden. “There is always money there that needs to be invested. There is money that needs to be managed. But it’s not automatic that it will come to Luxembourg.”
“And there again, I think we need to be much more--yes, I would say--ambitious when it comes to developing the future of this financial centre, taking into account the changes through innovation, technology, artificial intelligence,” all of which were topics that were discussed during the panel. “All that is, in my view, not sufficiently taken into account.”
Up to political world to decide what E, S and G mean
On the topic of ESG, “It is for the political world to decide what exactly means E and S and G,” said Frieden. “I think that probably there is no consensus on what it means even for the E. I’m confused by the fact that a decision has been taken by the European Parliament about what ‘taxonomy’ means, and that Luxembourg is challenging that in the European Court of Justice. I find that ridiculous, for a country that is only producing 11% of alternative energy, and we are challenging decisions taken by democratic institutions. So I think it is for the political world to decide what is E, what is S, and what is G.”
“I think we should not be too narrow-minded in defining this criteria,” he added. “Because if we only do business with quite a number of limited countries which apply exactly the same criteria in terms of democratic governments, in terms of human rights, I think we can forget the future of the real economy in Luxembourg, and also of the financial sector.”
Tax measures, including one addressing the subscription tax, could do more to develop ESG funds in Luxembourg, said Frieden.
Implementing regulation “burdensome”
Frieden saw regulation both as a threat and as an opportunity for the financial sector. “The implementation of the regulation is so burdensome, that it takes away a lot of brainpower to deal with strategic issues,” he said. “If you sit on the board of a bank, 80% is just making sure that you are in compliance with too much regulation.”
“The objective of most of this regulation is appropriate.” But sometimes the implementation of regulation can lead to “micromanagement” that goes “beyond the real legislation.” “I think it is for the board of a bank to decide a certain number of things--and not for the regulator--as long as you comply with regulation.”
On the other hand, regulation “is also an opportunity,” said Frieden, if it can be implemented faster. It’s complex, but cooperation with the private sector, such as law firms or other experts in Luxembourg, can help. He offered the example of the Alternative Investment Fund Managers Directive (AMIFD), which was first “considered as a big threat in Luxembourg.” However, through discussions with the private sector, “this legislation, which started as a threat, became a big opportunity for Luxembourg. And I think it should be more like that in the future, if we want this sector to remain the key sector of the Luxembourg economy.”
“I think we have no alternative to that because all those who say we need diversification--I’m with them. But diversification will not lead to the replacement of the ecosystem of the financial sector,” he said. “You can’t replace 30% of GDP by another sector. Certainly nothing short-term.”
“Need to bring back the idea of competitiveness”
One of the main topics of the conference was how Luxembourg’s attractiveness could be improved. In response, Frieden said, “We need to bring back the idea of competitiveness,” and emphasised the importance of closely monitoring what competing cities such as Frankfurt, Amsterdam, Dublin, London or Singapore are doing.
“I think the whole environment must lead in a coherent manner--and I stress in a coherent manner--to develop the financial services sector,” he said. It’s about listening to the sector and looking at the labour law, “which is not adapted to our times anymore,” Frieden added, offering an example of how working hours are organised.
Rethink taxation, for companies and individuals
“The tax environment, which was developed at a different time,” also needs to be rethought. It’s key to take into account the international environment. The green and digital transitions will cost a lot of money and cannot be done by the state alone. “The state should encourage this by deciding on special tax measures to encourage companies to invest more heavily into the digital and ecological transition,” said Frieden. “It can help to accelerate this transition--again, to remain competitive--that’s what we’re talking about.”
“The rest of Europe is not sleeping,” he repeated. Talent attraction is also “extremely important. I think we need to redo the way we tax people.” Luxembourg needs to be able to attract the best people in order to develop the financial sector, and it will also be key to ensure that Luxembourg’s interests are taken into account when legislation at the European level is negotiated, discussed and elaborated.
The financial sector’s success cannot be taken for granted and cannot just be considered a “milk cow” for the state, Frieden concluded. A lot has been done, but there’s a lot that still needs to be done in close coordination with the private sector. “It’s so complex that nobody--no civil servant, no minister--alone can achieve that.”
Panel of financial experts
The “unspun” conference also featured panellists from Luxembourg’s financial sector--the chairwoman of the Association of the Luxembourg Fund Industry Corrine Lamesch, CEO of the Luxembourg Bankers’ Association (ABBL) Jerry Grbic, managing director and executive committee president of the Banque de Luxembourg Pierre Ahlborn and Elvinger Hoss Prussen partner Pit Reckinger, and was moderated by Elvinger Hoss Prussen partner Henri Wagner--as well as a keynote speech from the director general of the CSSF, Luxembourg’s financial regulator, Claude Marx.